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W. R. Berkley Corporation Reports Fourth Quarter and Full Year Results

01/29/19

Fourth Quarter Net Income of $132 Million; Full Year Return on Equity of 11.8%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE:WRB) today reported net income for the fourth quarter of 2018 of $132 million, or $1.03 per share.

       
Summary Financial Data
(Amounts in thousands, except per share data)
 
Fourth Quarter   Full Year
2018   2017   2018   2017
   
Gross premiums written $ 1,847,214 $ 1,779,446 $ 7,702,494 $ 7,476,963
Net premiums written 1,519,571 1,478,236 6,433,227 6,260,508
 
Net income to common stockholders 132,357 154,589 640,749 549,094
Net income per diluted share 1.03 1.21 5.00 4.26
 
Return on equity (1) 9.8 % 12.3 % 11.8 % 10.9 %
 
(1)   Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.
 

Full year highlights included:

  • Return on equity of 11.8%, despite heightened industry catastrophe losses.
  • Total capital returned to shareholders was $280 million, including $255 million of ordinary and special dividends and $25 million of share repurchases.
  • Before dividends and share repurchases, book value per share grew 4.9% in spite of rising interest rates.

Fourth quarter highlights included:

  • The accident year combined ratio excluding catastrophes was 93.9% and the calendar year combined ratio was 95.9%.
  • Investment income increased 7.1%.
  • Total capital returned to shareholders was $97 million, including $79 million of ordinary and special dividends and $18 million of share repurchases.
  • Before dividends and share repurchases, book value per share grew 1.7%.
  • Net realized pre-tax gains and net unrealized pre-tax gains on equity securities of $13 million, net of performance-based compensatory costs (1).

The Company commented:

Our results for the fourth quarter of 2018 once again demonstrated our strategy for managing volatility. We delivered strong underwriting and investment results during a period of elevated worldwide catastrophes and turbulent securities markets.

The Company continues to grow where it can achieve its targeted return, while de-emphasizing less attractive opportunities. Rate improvement for most lines of business is likely to continue for the foreseeable future, and we expect further gradual progress in reducing our expense ratio during 2019.

We are also seeing higher yields in our fixed-maturity investment portfolio. Our strategic decision to maintain its short duration provides a meaningful opportunity to reinvest at higher yields when interest rates rise, and the flexibility to redeploy funds at the appropriate time.

Managing risk and volatility in all aspects of our business has been a critical component of our strategy for more than 50 years. We remain focused on long-term value creation for our shareholders, only accepting volatility where we believe we can achieve an appropriate risk-adjusted return. Accordingly, we are confident that we will continue to deliver strong returns in 2019 and beyond.

 
(1) Net realized pre-tax gains and net unrealized pre-tax gains on equity securities before performance-based compensatory costs were $14 million.
 

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on January 29, 2019, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at http://www.wrberkley.com/investor-relations/events-and-presentations.aspx. Please log on at least ten minutes early to register and download and install any necessary software. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property casualty business: Insurance and Reinsurance.

Forward Looking Information

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2019 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's expected withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2019 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

       
Consolidated Financial Summary
(Amounts in thousands, except per share data)
 
Fourth Quarter   Full Year
2018   2017   2018   2017
Revenues:    
Net premiums written $ 1,519,571 $ 1,478,236 $ 6,433,227 $ 6,260,508
Change in unearned premiums   99,988       112,939       (61,722 )     50,911  
Net premiums earned 1,619,559 1,591,175 6,371,505 6,311,419
Net investment income 159,816 149,186 674,235 575,788
Net realized and unrealized gains on investments:
Net realized and unrealized gains before OTTI (1) 19,746 59,098 160,175 335,858
Other-than-temporary impairments ("OTTI")   (5,687 )           (5,687 )      
Net realized and unrealized gains on investments   14,059       59,098       154,488       335,858  
Revenues from non-insurance businesses 130,948 101,132 372,985 326,165
Insurance service fees 26,582 34,254 117,757 134,729
Other income   622       111       681       805  
Total revenues   1,951,586       1,934,956       7,691,651       7,684,764  
Expenses:
Losses and loss expenses 1,020,126 976,872 3,974,702 4,002,348
Other operating costs and expenses 601,992 615,778 2,383,221 2,436,932
Expenses from non-insurance businesses 126,252 104,027 364,449 325,417
Interest expense   40,577       36,879       157,185       147,297  
Total expenses   1,788,947       1,733,556       6,879,557       6,911,994  
Income before income taxes 162,639 201,400 812,094 772,770
Income tax expense   (26,367 )     (45,128 )     (163,028 )     (219,433 )
Net income before noncontrolling interests 136,272 156,272 649,066 553,337
Noncontrolling interests   (3,915 )     (1,683 )     (8,317 )     (4,243 )
Net income to common stockholders $ 132,357     $ 154,589     $ 640,749     $ 549,094  
 
Net income per share:
Basic $ 1.04 $ 1.22 $ 5.06 $ 4.40
Diluted $ 1.03 $ 1.21 $ 5.00 $ 4.26
 
Average shares outstanding (2):
Basic 127,067 126,269 126,699 124,843
Diluted 128,407 128,221 128,264 129,018
 
(1)   Includes net realized gains on investment sales of $60 million reduced by a change in unrealized gains on equity securities of $40 million in the fourth quarter of 2018. For the twelve months ended December 31, 2018, includes net realized gains on investment sales of $480 million reduced by a change in unrealized gains on equity securities of $320 million. The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01.
 
(2) Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust). Diluted shares outstanding consist of the weighted average number of basic and common equivalent shares outstanding during the period.
 
       
Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
 
Fourth Quarter   Full Year
2018   2017   2018   2017
Insurance:    
Gross premiums written $ 1,704,067 $ 1,636,139 $ 7,157,370 $ 6,869,831
Net premiums written 1,391,491 1,351,233 5,952,861 5,715,871
Premiums earned 1,487,978 1,443,958 5,864,981 5,706,443
Pre-tax income 202,075 198,547 856,011 756,153
Loss ratio 62.1 % 61.3 % 61.8 % 61.6 %
Expense ratio 32.6 % 33.1 % 32.5 % 32.9 %
GAAP combined ratio 94.7 % 94.4 % 94.3 % 94.5 %
 
Reinsurance:
Gross premiums written $ 143,147 $ 143,307 $ 545,124 $ 607,132
Net premiums written 128,080 127,003 480,366 544,637
Premiums earned 131,581 147,217 506,524 604,976
Pre-tax income (loss) 11,457 23,004 62,144 (15,276 )
Loss ratio 73.2 % 61.9 % 68.7 % 80.2 %
Expense ratio 36.1 % 38.3 % 37.7 % 37.4 %
GAAP combined ratio 109.3 % 100.2 % 106.4 % 117.6 %
 

Corporate and Eliminations:

Net realized and unrealized gains on investments $ 14,059 $ 59,098 $ 154,488 $ 335,858
Interest expense (40,577 ) (36,879 ) (157,185 ) (147,297 )
Other revenues and expenses (24,375 ) (42,370 ) (103,364 ) (156,668 )
Pre-tax (loss) income (50,893 ) (20,151 ) (106,061 ) 31,893
 
Consolidated:
Gross premiums written $ 1,847,214 $ 1,779,446 $ 7,702,494 $ 7,476,963
Net premiums written 1,519,571 1,478,236 6,433,227 6,260,508
Premiums earned 1,619,559 1,591,175 6,371,505 6,311,419
Pre-tax income 162,639 201,400 812,094 772,770
Loss ratio 63.0 % 61.4 % 62.4 % 63.4 %
Expense ratio 32.9 % 33.5 % 32.9 % 33.3 %
GAAP combined ratio 95.9 % 94.9 % 95.3 % 96.7 %
 
(1)   Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.
 
       
Supplemental Information
(Amounts in thousands)
 
Fourth Quarter   Full Year
2018   2017   2018   2017
Net premiums written:    
Other liability $ 480,761 $ 446,236 $ 1,951,906 $ 1,831,039
Workers' compensation 312,476 329,746 1,480,102 1,495,148
Short-tail lines (1) 289,844 272,112 1,198,878 1,119,988
Commercial automobile 169,792 165,844 759,714 718,387
Professional liability   138,618       137,295     562,261       551,309
Total Insurance   1,391,491       1,351,233     5,952,861       5,715,871
Casualty reinsurance 97,336 90,760 350,282 366,397
Property reinsurance   30,744       36,243     130,084       178,240
Total Reinsurance   128,080       127,003     480,366       544,637
Total $ 1,519,571     $ 1,478,236   $ 6,433,227     $ 6,260,508
 
Losses from catastrophes:
Insurance $ 26,367 $ 13,301 $ 75,778 $ 107,147
Reinsurance   19,156       4,402     29,691       77,129
Total $ 45,523     $ 17,703   $ 105,469     $ 184,276
 
Net investment income:
Core portfolio (2) $ 137,541 $ 128,851 $ 536,730 $ 488,474
Investment funds 15,274 17,425 109,349 68,169
Arbitrage trading account   7,001       2,910     28,156       19,145
Total $ 159,816     $ 149,186   $ 674,235     $ 575,788
 
Net realized and unrealized gains before OTTI:
Net realized gains on investment sales $ 59,789 $ 59,098 $ 480,588 $ 335,858
Change in unrealized gains on equity securities (3)   (40,043 )         (320,413 )    
Total $ 19,746     $ 59,098   $ 160,175     $ 335,858
 
Other operating costs and expenses:
Policy acquisition and insurance operating expenses $ 532,408 $ 533,665 $ 2,098,881 $ 2,101,024
Insurance service expenses 27,387 32,469 118,357 129,776
Net foreign currency (gains) losses (5,033 ) 1,012 (27,067 ) 15,267
Other costs and expenses   47,230       48,632     193,050       190,865
Total $ 601,992     $ 615,778   $ 2,383,221     $ 2,436,932
 
Cash flow from operations $ 202,039     $ 189,025   $ 544,563     $ 710,883
 
(1)   Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.
 
(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.
 
(3) The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01.
 
       
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
 
December 31,

2018

  December 31,

2017

 
Net invested assets (1) $ 18,828,321 $ 18,508,646
Total assets 24,895,977 24,299,917
Reserves for losses and loss expenses 11,966,448 11,670,408
Senior notes and other debt 1,882,028 1,769,052
Subordinated debentures 907,491 728,218
Common stockholders’ equity (2) 5,437,851 5,411,344
Common stock outstanding (3) 121,996 121,515
Book value per share (4) 44.57 44.53
Tangible book value per share (4) 42.63 42.51
 
(1)   Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.
 
(2) As of December 31, 2018, reflected in common stockholders' equity are after-tax unrealized investment losses of $91 million and unrealized currency translation losses of $419 million. As of December 31, 2017, after-tax unrealized investment gains were $375 million and unrealized currency translation losses were $307 million. The decrease in unrealized investment gains during 2018 was primarily attributable to the change in accounting treatment of equity securities and the impact on fixed maturity securities from rising interest rates.
 
(3) During the three months ended December 31, 2018, the Company repurchased 256,600 shares of its common stock for $17.9 million. During the full year ended December 31, 2018, the Company repurchased 357,600 shares of its common stock for $24.7 million. The number of shares of common stock outstanding excludes shares held in a grantor trust.
 
(4) Book value per share is total common stockholders’ equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders’ equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.
 
       
Investment Portfolio
December 31, 2018
(Amounts in thousands)
 
Fixed maturity securities: Carrying
Value
  Percent
of Total
 
United States government and government agencies $ 702,240 3.7 %
State and municipal:
Special revenue 2,425,868 12.9 %
Pre-refunded 430,169 2.3 %
Local general obligation 425,337 2.3 %
State general obligation 384,706 2.0 %
Corporate backed   274,409   1.5 %
Total state and municipal   3,940,489   21.0 %
Mortgage-backed securities:
Agency 920,496 4.9 %
Commercial 342,666 1.8 %
Residential - Prime 303,229 1.6 %
Residential - Alt A   38,899   0.2 %
Total mortgage-backed securities   1,605,290   8.5 %
Asset-backed securities   2,438,747   13.0 %
Corporate:
Industrial 2,257,821 12.0 %
Financial 1,463,922 7.8 %
Utilities 329,175 1.7 %
Other   60,393   0.3 %
Total corporate   4,111,311   21.8 %
Foreign government   808,735   4.3 %
Total fixed maturity securities (1)   13,606,812   72.3 %
Equity securities available for sale:
Preferred stocks 180,814 1.0 %
Common stocks   98,192   0.5 %
Total equity securities available for sale   279,006   1.5 %
Real estate 1,957,092 10.4 %
Investment funds (2) 1,331,482 7.1 %
Cash and cash equivalents (3) 1,106,568 5.9 %
Arbitrage trading account 452,548 2.4 %
Loans receivable   94,813   0.4 %
Net invested assets $ 18,828,321   100.0 %
 
(1)   Total fixed maturity securities had an average rating of AA- and an average duration of 2.8 years, including cash and cash equivalents.
 
(2) Investment funds are net of related liabilities of $1.3 million.
 
(3) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

Karen A. Horvath
Vice President - External Financial Communications
(203) 629-3000

Source: W. R. Berkley Corporation

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